A designated individual faces criminal proceedings in a Canadian court. Their assets are frozen under Canadian sanctions. Their Canadian lawyer needs payment. Can frozen funds move to pay legal fees? The answer matters immediately – and the window to act can be short.
Canadian sanctions law, administered by Global Affairs Canada (GAC) under the Special Economic Measures Act ("SEMA"), permits the release of frozen funds for bona fide legal fees, but only through an authorised permit. Without a valid permit in place, any payment from blocked assets – even to a lawyer, even for a criminal defence – is a prohibited dealing. Permit eligibility, the required documentation, and the applicable standard are strict; the process demands careful preparation before the first filing.
This guide takes practitioners and their clients through the legal basis, the step-by-step permit procedure, the cross-border considerations that complicate Canadian applications, and the risk flags that most commonly derail an otherwise meritorious request.
What is the legal basis for a legal-fees permit under Canadian sanctions?
SEMA gives the Governor in Council authority to freeze the property of designated persons and, separately, to authorise dealings that would otherwise be prohibited. GAC administers both functions. The relevant country-specific regulations adopted under SEMA replicate the asset freeze and identify categories of permitted transactions; legal fees for legitimate legal representation fall within a recognised category across most of Canada's thematic and country-specific regimes, though the precise drafting of the authorisation power varies between them.
The instrument in question is a permit (the Canadian term for a specific authorisation). It is analogous to the specific licence used by OFAC in the United States or the specific licence issued by OFSI in the United Kingdom, but the Canadian permit regime has its own procedural rules, its own standard of review, and its own documentation expectations. A practitioner familiar with OFAC or OFSI licensing alone should not assume that the Canadian process will follow the same path.
GAC operates under statutory time-pressure once an application is properly constituted, though the precise statutory deadline should be verified against the current regulations before reliance. In our experience, the practical processing time depends heavily on the completeness of the initial submission. Incomplete applications invite requests for further information that extend the timeline considerably.
Step 1 – Determine whether a permit is genuinely required
Before drafting an application, confirm that no general authorisation already covers the payment. Some SEMA regulations include general exceptions (standing authorisations for defined categories of activity) that may permit limited dealings without a case-by-case permit. If a general exception applies, the applicant should document its reliance carefully; it does not need a specific permit for payments that fall squarely within a general exception.
The threshold question turns on the nature of the funds and the status of the person. Is the paying party itself designated? Is the paying party an entity owned or controlled by a designated person? Canadian law applies an ownership and control test to determine whether a non-listed entity is caught through a listed person. That test looks to both ownership percentage and effective control – it is not purely mechanical in the way OFAC's 50 percent rule operates. A non-designated company that is materially controlled by a designated person may nonetheless be subject to the asset freeze, and any payment from that company would require a permit.
Map the ownership structure fully before concluding that no permit is required. This is where errors arise most often. A company that appears non-designated at first glance can sit within a prohibited chain when the full structure is reviewed.
Step 2 – Identify the correct regulatory instrument and the permit authority
Canada maintains separate sanctions regulations under SEMA for different country-specific and thematic programmes. The legal-fees provision, and the permit power attached to it, appears in the specific regulation applicable to the designated person's designation. If the individual is designated under more than one set of regulations, each relevant set must be addressed. A permit issued under one set of regulations does not authorise dealings that are separately prohibited under another.
GAC's Sanctions Regulations team within the Trade Controls Bureau processes legal-fees permit applications. It is useful, before filing, to make a preliminary enquiry to confirm the correct address for service, the preferred submission format, and whether any standard application template is in current use. GAC has updated its administrative guidance periodically; relying on outdated procedural instructions risks a defective filing.
Is the designated person also listed on the United Nations Security Council Consolidated List? If so, Canadian obligations under the United Nations Act and the relevant UN regulations may create a parallel layer. The UN Consolidated List and the SEMA list are distinct; a permit under SEMA does not itself satisfy UN-derived restrictions. Practitioners should confirm the UN position before assuming that a Canadian permit resolves the full legal position.
Step 3 – Assemble the required documentation
A well-prepared legal-fees permit application typically contains four core elements: a cover letter stating the legal basis and the relief sought; a retainer agreement or engagement letter identifying the legal representative and the scope of the proposed representation; evidence of the fees and disbursements in question (invoices, fee estimates, or a detailed budget); and evidence that the funds to be released are the property of the designated person and are within the scope of the freeze.
GAC will expect the application to be specific. Blanket requests for authority to pay unspecified future fees are unlikely to succeed. The application should identify the matter, the proceeding, the legal representative, and, where possible, a defined amount or period. An application that reads as an open-ended request for general legal-fee access raises immediate questions about scope and proportionality.
Supporting material may also include: confirmation from the relevant court or tribunal that proceedings are under way or pending; an explanation of why the designated person cannot fund legal representation from non-sanctioned assets (if that is the factual position); and, where the person is not a Canadian national, any information about the territorial jurisdiction of the legal proceedings. In our experience, the strength of the explanatory narrative significantly affects how quickly GAC processes an application.
Documentation should be filed in both official languages (English and French) unless GAC confirms that a unilingual submission is acceptable for the specific matter. Canada's bilingual statutory and administrative environment means that translation of key materials can add time and cost to an application that is otherwise ready to file.
Step 4 – File and manage GAC's review
The application is submitted to GAC's Trade Controls Bureau by the designated person, their authorised legal representative, or (where the funds are held by a third party such as a financial institution) a combination of the two. The financial institution holding the frozen assets will often need to be involved in the process, both to confirm the account position and to receive the permit when issued.
Once a submission is received, GAC may issue a request for additional information. That request should be treated as a priority. Delay in responding to a GAC information request extends the overall timeline and, in some instances, results in the application being treated as incomplete and returned. Maintain a clear file of all correspondence and keep records of submission dates.
Applicants should expect scrutiny of whether the fees are reasonable and bona fide. GAC is not obliged to authorise a permit simply because legal representation is sought. Where the proposed fees appear disproportionate, or where the scope of the representation is unclear, GAC may limit the permit to a defined amount or period. This is consistent with the approach taken by OFSI in the United Kingdom under its legal-fees licensing guidance – both regulators apply a proportionality consideration, though the precise statutory test differs.
Keep the legal representative and any relevant financial institution informed of progress. If GAC issues a partial permit or attaches conditions, those must be understood and accepted before funds move. Moving funds before a permit is issued, or in excess of what the permit authorises, is a prohibited dealing under SEMA regardless of good faith.
How does Canada's approach compare with OFAC, OFSI, and the EU?
Across the four major western sanctions regimes, the legal-fees licence sits within a broadly similar policy rationale – access to justice for designated persons – but the mechanics diverge in ways that matter for cross-border matters.
Under OFAC, legal-fees payments to US counsel are typically permitted under a general licence up to a defined monetary cap, with payments above that cap requiring a specific licence. The cap is stated in the relevant SEMA regulations' US counterpart instruments; practitioners should verify the current figure directly. The US general-licence route means that many standard retainer-fee payments proceed without a case-by-case application.
OFSI in the United Kingdom operates differently. There is no general licence for legal fees that automatically permits payment without a specific authorisation. An OFSI specific licence is required for any release of frozen funds to fund legal costs, and OFSI applies a reasonableness and necessity standard. The UK approach is therefore closer to Canada's case-by-case permit requirement than to the US general-licence model.
Under EU sanctions regulations, the position has varied between sanctions programmes. Some EU regulations include an explicit legal-fees exception that operates as a general authorisation subject to conditions; others require a competent-authority authorisation at Member State level. The EU General Court has addressed the right to legal representation in the context of asset-freeze disputes. The key practical point for a cross-border matter is that a GAC permit, an OFSI licence, and an EU competent-authority authorisation are all distinct; one does not substitute for another.
For a business or individual with exposure across two or more of these regimes, the most restrictive prohibition governs. If the designated person's assets are held in multiple jurisdictions, the legal-fees release must be authorised under each applicable regime before funds in that jurisdiction move. In our cross-border practice, failing to obtain parallel authorisations before a payment moves is one of the most avoidable errors we encounter.
The position above covers the standard case. Your facts – the composition of the designated person's asset pool, the jurisdictions where funds are held, the regimes under which the person is listed, and the nature of the proceedings – change the analysis materially.
For an assessment of your permit application strategy under the Canadian regime, contact Calder & Vance at info@caldervance.com.
Risk flags: when does a legal-fees application run into difficulty?
Several patterns recur in applications that are delayed, refused, or granted on narrower terms than sought. Awareness of them allows applicants to address each before filing.
Undefined scope. An application that does not specify the proceeding, the legal representative by name and firm, and the amount or period sought will almost certainly attract a request for further information. GAC has limited appetite for open-ended permits.
Unresolved ownership questions. If the source of the legal fees is an entity whose relationship to the designated person has not been clearly mapped, GAC may decline to issue a permit until the structure is clarified. The control test under Canadian law means that ambiguous ownership chains cannot simply be ignored.
Parallel UN designation not addressed. Where the designated person is also on the UN Consolidated List, an applicant that addresses only the SEMA position leaves a significant legal gap. GAC will not necessarily volunteer that the UN position requires separate attention.
Mismatched currency or payment mechanics. A permit that authorises a payment in Canadian dollars does not authorise a conversion and transfer in a foreign currency. The mechanics of how frozen funds will move to the lawyer must be consistent with the permit as drafted.
Financial institution not engaged early. In our experience, one of the most common causes of delay is that the institution holding the frozen assets is not consulted until after the permit is issued. Banks and custodians need time to verify the permit, confirm its scope, and process the release internally. Engaging the institution during the application phase, not after it, avoids last-minute delays.
If a transaction has already been flagged – or if an initial application has been refused or returned – an early review can preserve options that narrow with time.
For a confidential review of a current application or a refusal, contact Calder & Vance at info@caldervance.com.
A common misconception: the permit is a formality
A persistent assumption among designated persons and their legal representatives is that a legal-fees permit is effectively automatic once a legitimate legal proceeding exists. That assumption is not well-founded under Canadian practice. GAC exercises a genuine discretion. It considers the proportionality of the fees, the sufficiency of the supporting documentation, and the consistency of the application with the policy rationale of the relevant sanctions programme.
Proportionality is not a vague standard. GAC compares the proposed fee level against what is reasonable for the type of proceeding in question. An application for a significant fee retainer in a matter of modest complexity, without an adequate explanation of scope, is unlikely to pass without amendment.
Moreover, a permit is not retrospective. It authorises future payments, not payments already made. A legal representative who has accepted funds from a designated person in advance of a permit – even under an honest belief that the permit would be forthcoming – has participated in a transaction that may require its own analysis under SEMA. The prudent course is always to have the permit in hand before any funds move.
We regularly advise legal professionals who are uncertain whether accepting a retainer from a client with sanctions exposure would itself require prior authorisation. That question deserves a considered answer before the retainer is taken, not after.
Related practices
- Frozen account management under US export-control rules – managing blocked-account obligations under the EAR and related US regimes.
- Legal-fees licences: cross-border guide – comparing the legal-fees licence process across OFAC, OFSI, EU, and Canadian regimes.
- Legal-fees licences under the EU – step-by-step guide to EU competent-authority authorisations for legal costs.